Insuring against extreme weather

A farmer drives his tractor past a flooded field of corn near Yazoo City, Miss. on Saturday, May 21, 2011.

A high-tech crop insurance company aims to make farming profitable — and itself — by writing policies that offer protection against floods, frosts, droughts and other bouts of crop-damaging weather that are on the rise.

Whether the increase in these weather events are due to human-caused climate change, the company said, is not their business, but the events are trending upwards and they have the technology to analyze the risk they pose to individual farmers and price polices accordingly.

"We are not trying to predict exactly what will happen, we are trying to create a distribution of outcomes of what might happen," David Friedberg, the CEO of The Climate Corporation, which is issuing the insurance, told me Thursday.

"It is the probabilistic distribution of things that might happen that allows us to figure out what price to charge for the insurance that we are selling."

High-tech risk analysisThis ability hinges on a system that crunches a deluge of data from state-of-the-art climate models, millions of weather measurements, and billions of soil observations. At any given time, more than 50 terabytes of live data are in its systems.

Farmers purchase policies for specific plantings (such as a field of corn or wheat) and are paid automatically when an identified type of weather hits that is known to cause production shortfalls, such as crop-wilting heat or drought.

The Climate Corporation was founded by ex-Googlers who believe that these types of weather events are becoming increasingly common. Whether this increase in weather volatility is due to human cause climate change, however, the company doesn't have an opinion, Friedberg said.

"All that we can do is identify trends in climate data and use them to help us predict what is going to happen in the future," he said.

For example, he said they can look at any city in the United States and see that temperatures have increased slightly over the last 30 years and seem to be continuing to increase, but that's not what they're interested in.

Rather, the impacts they are looking for are droughts, such as the one currently crippling Texas and the floods that hit Midwest farms in the spring.

"Those are the sorts of events that farmers and other businesses care about … and those are the sorts of events that we also see big trends in," Friedberg said.

Polls show a growing percentage of Americans now believe the planet is warming, but the issue remains a political hot potato. Most Republican presidential candidates — John Huntsman aside — eschew the idea that fossil fuel burning is causing the climate to change, for example.

Meanwhile, legislation to combat climate change has failed to make its way through Congress and climate scientists are routinely accused of manipulating data, though those claims have been proven mostly false.But for the insurance industry, where money does most of the talking, whether anyone says it directly or not, climate change is decidedly real and will wreak havoc on life, property, and crops. As a result, the industry is becoming proactive in incorporating changing climate into its risk analyses.

The National Association of Insurance Commissioners now, on a state-by-state opt-in basis, surveys companies about the risk climate changes poses to insurers and the actions insurers are taking in response to their understanding of those risks, for example.

Munich Re, a multinational company that insures insurance companies, issued a report in July showing 2011 was already the costliest year on record in terms of property damage.

While natural disasters unrelated to climate change such as the earthquake and tsunami in Japan make up for a big chunk of the losses, flooding in Australia has the fingerprint of climate change, Peter Hoppe, who runs the company's Geo Risk/Corporate Climate Center, told reporters as the report was released.

Natural events such as La Nina and El Nino, ocean cycles that alter weather systems, are certainly factors as well, but warming temperatures appear to be adding a layer "on top" of that natural variability, Hoppe said.

He also cited a climate connection between Australia's severe floods and rising ocean temperatures off the coast there. That means "more evaporation and higher potential for these extreme downpours," he said.

"It can only be explained by global warming," he added.

Now that this acknowledgement exists, insurers such as The Climate Corporation are creating innovative tools to offer protection from the risk posed by the increased chance that bad weather can wipe out a year's income.

"If you are a farmer, you really can't afford to have another heat wave or another early freeze event or delayed plant period," said Friedberg. "We can really reach in and help."